In Tower Insurance Company of New York v. Anderson, 2015 WL 7432884 (1st Dep’t. 2015), the Appellate Division addressed the issue of the date an insurer first had “sufficient knowledge of potential material misrepresentations” by its insureds to rescind the policy. In Anderson, Tower brought a DJ action against its insured seeking a declaration that no coverage was owed under a homeowner’s insurance policy in connection with an underlying personal injury action.
The underlying personal injury action arose out of a slip and fall at the Anderson’s home in Brooklyn on November 22, 2011. Anderson notified Tower of the accident after suit was brought in February 2012. On March 5, 2012 Tower disclaimed coverage on the grounds that Anderson did not reside at the insured location on the date of loss, and that Anderson falsely represented their residence on the insurance policy. In June 2012, Tower initiated the DJ action seeking a declaration that it has no duty to defend or indemnify Anderson in the underlying action. During litigation of the DJ action, Tower renewed the Anderson policy and continued to receive premium payments.
The lower court in Anderson found that Tower’s acceptance of renewal premiums did not estop it from disclaiming coverage, nor did Tower waive its right to rescind the policy by accepting Anderson’s renewal premiums. The lower court agreed with Tower, and held that it did not have concrete facts establishing that Anderson materially misrepresented his residence until April 4, 2014. Once Tower had all of the facts, it rescinded the policy and refused to collect any premiums from Anderson.
The First Department reversed, because Tower had sufficient facts to rescind the policy on March 5, 2012 when it disclaimed coverage. The Court stated that, “as early as March 5, 2012 [Tower] suspected a material misrepresentation […] by accepting the premium payments after learning of Anderson’s material misrepresentations, [Tower] waived its right to rescind the policy. This is so even if its reason for accepting the payments was to ‘protect’ its insureds pending a determination of this action.”
On March 5, 2012, Tower disclaimed coverage due to a conversation with its insured in which they mentioned they did not reside at the insured location at the date of loss. Such information appeared to be enough to disclaim coverage based on an exclusion, but not enough to rescind the policy based upon an insured’s material misrepresentation. With the First Departments ruling, it appears that as soon as an insurer suspects a material misrepresentation, it should refuse policy premiums and attempt to rescind the policy or else it may waive any right to do so in the future.
At a glance, this decision may encourage premature disclaimers, and discourage a thorough claim investigation. To be sure, every suspected misrepresentation by an insured does not prove “material” enough to warrant rescission of coverage. We will keep tabs on how this decision affects future disclaimers for material misrepresentation, particularly in the First Department. Thanks to Dan Beatty for his contribution to this post. Please email Brian Gibbons with any questions.